Spandana Sphoorty Q1 FY27 Earnings Call: Management Targets ₹6,000–6,500 Crore Disbursements as Asset Quality Improves

What Happened ?

Spandana Sphoorty Q1 FY27 Earnings Call reflected management’s confidence that the company’s turnaround is gaining traction after several quarters of operational restructuring. Management described Q1 FY27 as a “new morning” for the company, supported by stronger business growth, disciplined underwriting, improving collections and lower funding costs.

Alongside financial improvement, the company outlined strategic priorities including expansion into underpenetrated states, rollout of individual loans, technology upgrades, branch productivity improvements and continued focus on sustainable growth rather than aggressive balance sheet expansion. 

key details

Business Performance and Growth Momentum:

• AUM increased 11% QoQ to ₹4,887 crore.
• New member additions improved to 1.38 lakh during the quarter.
• New customer acquisition ratio increased to 61% from 46% in the previous quarter.
• New portfolio now represents 91% of total AUM.
• Management expects current business momentum to continue during FY27.

Investor Note:

• Management believes stronger sourcing quality and disciplined underwriting are driving sustainable business growth rather than rapid expansion. 

Asset Quality Continues to Improve:

• Collection efficiency remained strong at 99.5%.
• Gross NPA improved to 3.6%.
• Stage 1–90 delinquency reduced to 1.2%.
• Net credit cost remained at 2.1% annualised.
• Recoveries from the legacy 90+ pool reached ₹51 crore during the quarter.

Management reiterated its FY27 credit cost guidance of 2.5%–3.0% gross credit cost, while expecting net credit cost to remain close to 2% because of continued recoveries.

Note:

• Improving portfolio quality is primarily attributed to tighter underwriting under revised SRO guidelines and better collection discipline.

Borrowing Costs Continue to Decline:

• Incremental borrowing cost reduced to 11.3%.
• Overall borrowing cost declined to 12.8%.
• Bank funding share increased from 44% to 47%.
• ₹545 crore sanctioned under the Credit Guarantee Scheme (CGS).
• Additional CGS sanctions remain under process.

Management expects further reduction in funding costs as PSU banks increase participation and CGS borrowings continue replacing higher-cost liabilities.

Note:

• Lower funding costs are expected to support further improvement in net interest margins over the coming quarters. 

Profitability Continues to Recover:

• PAT improved to ₹12 crore from ₹5 crore in Q4 FY26.
• NIM expanded to 12.5%.
• Yield improved to 24.6%.
• Pre-Provision Operating Profit (PPOP) increased significantly.
• Management expects ROA to improve progressively towards the long-term target of 3.5%.

Note:

• Improving asset quality, higher yields and lower borrowing costs are expected to support continued earnings recovery.

FY27 Growth Strategy:

Management outlined several priorities for FY27:

• Target ₹6,000–6,500 crore disbursements.
• Exit FY27 with AUM slightly above ₹6,000 crore.
• Long-term objective of approximately ₹10,000 crore AUM by March 2028.
• Expand aggressively in Tamil Nadu and Maharashtra.
• Increase market share in underpenetrated regions.

Management emphasised that future growth will remain calibrated and supported by adequate operational controls.

Note:

• The company intends to prioritise sustainable expansion over rapid balance sheet growth. 

Individual Loan Pilot Begins:

• Individual loan product to be piloted across 8 branches in Madhya Pradesh.
• Initially targeted at existing borrowers.
• Future rollout expected for new customers with established credit histories.
• Product supported by eNACH collections.

Management believes the product offers better underwriting quality while expanding lending opportunities beyond traditional microfinance.

Note:

• The pilot represents an important step in diversifying the company’s lending portfolio. 

Operational Improvements:

• Dedicated revival programme launched for 100 underperforming branches.
• No immediate plans for large-scale branch closures.
• Expansion expected in Maharashtra and Tamil Nadu.
• New Chief Business Officer appointed for South India.
• Attrition reduction remains a management priority.

Management believes branch productivity can improve significantly through operational focus rather than network rationalisation.

Note:

• Productivity improvement remains a key driver of future operating leverage. 

Technology and Digital Transformation:

• New Loan Origination System (LOS) under implementation.
• Migration to the Perfios platform expected during FY27.
• Enhanced collections platform to improve customer monitoring.
• AI-assisted telecalling and automated bot calling introduced.
• QR-based digital collections continue expanding.

Management expects technology investments to improve underwriting, collections and operational productivity across approximately 1,250 branches.

Note:

• Digital initiatives are expected to strengthen both customer acquisition and collection efficiency over time. 

Management Outlook:

Management expects:

• Collection efficiency to remain around 99.5%.
• Credit costs within guidance.
• Further decline in borrowing costs.
• Stable operating expenses despite business growth.
• Controlled expansion supported by disciplined underwriting.
• Continued recovery in profitability during FY27.

Management also stated that no deterioration has been observed in July collections despite concerns regarding monsoon variability and El Niño conditions.

Note:

• The company remains focused on maintaining portfolio quality while gradually accelerating business growth.

Risk Analysis

Summary:

• Although operating performance continues to improve, management remains focused on maintaining underwriting discipline amid expansion plans and potential weather-related disruptions affecting borrower cash flows.

Key Risks:

• Weak monsoon or El Niño affecting rural repayment capacity.
• Credit quality deterioration if underwriting discipline weakens.
• Competition in core microfinance markets.
• Delay in lowering funding costs.
• Execution risk while expanding into new states.
• Technology migration risks during LOS implementation.

Worst Case:

• If rural repayment trends weaken because of adverse weather or competitive lending practices increase borrower leverage, asset quality and profitability could come under pressure despite ongoing operational improvements.

Risk Level: Medium

Company Commentary

• Management described Q1 FY27 as the beginning of a “new morning” for the company.
• Sustainable growth remains the primary objective rather than aggressive expansion.
• Individual loans, technology upgrades and branch productivity are key strategic initiatives.
• Funding costs are expected to decline further through improved bank participation and CGS borrowings.
• Management remains confident of achieving FY27 business targets while maintaining disciplined underwriting and strong collection efficiency.